UK challenges Brussels over banking union

BRITAIN is pushing for changes to a proposed Eurozone banking union to dilute the power of the European Central Bank, EU officials said yesterday, potentially hampering efforts to build the infrastructure urgently needed to underpin the euro.

The European Commission has proposed making the ECB responsible for supervising lenders as a step towards a banking union where chiefly Eurozone countries would jointly tackle problem banks and shield savers’ deposits.

But last month’s Commission proposal, central to closer economic integration in the currency area, has encountered opposition in Britain, Europe’s biggest financial centre, that could delay or even derail banking union.

Britain intends to propose a system that would give countries outside the banking union the possibility of blocking those within the project from clubbing together to shape EU-wide regulations, said EU officials, speaking on condition of anonymity.

“The concern is that the Bank of England can find itself outvoted by the ECB on aspects of rule making,” said one official. Britain will not join the banking union, while the Bank of England will become the UK regulator next year.

“They are worried that the euro area will be able to push through a whole lot of decisions of its own volition. They are looking for something with checks and balances.”

Although the discussion is technical, it is highly politically charged. Speaking privately, a second EU official said it could further sour an already strained relationship between Britain and the bloc.

A spokesman for the Treasury said: “We’ve consistently said that the euro area, like any single currency, needs closer economic and fiscal integration to secure its future. More integrated supervision of euro area banks is a part of that.

“We’ve also been clear that any measures must be compatible with the single market, and uphold a level playing field for all EU member states,” he added.